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154) If a company incorrectly records a payment as an expense instead of an asset, how will this
error affect net income in the current period?
A) Net income will be too low.
B) Net income will be correct.
C) Net income will be too high.
D) Not possible to determine.
155) If a company records cash received for services to be provided in the future with a debit to
Cash and a credit to Service Revenue, how will this error affect net income for the current
period?
A) Net income will be too low.
B) Net income will be correct.
C) Net income will be too high.
D) Not possible to determine.
156) The statement of stockholders' equity includes which of the following for the period?
A) Details of a company's profitability that represents stockholders' claims.
B) Changes in stockholders' equity accounts.
C) Inflows and outflows of cash that benefit stockholders.
D) Current assets available to pay current liabilities to reduce risk to stockholders.
157) The statement of stockholders' equity includes:
A) Net income from the income statement.
B) The amount of stock issued in the current period.
C) Dividends declared to stockholders in the current period.
D) All of the other answers are correct.
158) In the statement of stockholders' equity, Retained Earnings had a beginning balance of
$25,000. During the period, the company reports a net income of $10,000 and a dividend of
$4,000. The ending balance in the Retained Earnings account is:
A) $10,000.
B) $35,000.
C) $39,000.
D) $31,000.
159) In the statement of stockholders' equity, Retained Earnings had a beginning balance of
$60,000. During the period, the company reports a net loss of $10,000 and net cash outflows of
$15,000. The ending balance in the Retained Earnings account is:
A) $60,000.
B) $35,000.
C) $50,000.
D) $45,000.
160) In the statement of stockholders' equity, the balance of Retained Earnings increased by
$32,000. The company declared a dividend of $10,000 during the year. What was the net income
for the year?
A) $10,000.
B) $32,000.
C) $42,000.
D) $22,000.
161) A classified balance sheet ________.
A) Shows only current assets and current liabilities
B) Shows changes in assets, liabilities, revenues and expenses
C) Contains confidential information
D) Shows subtotals for current assets and current liabilities
162) Which financial statement provides information for a point in time only?
A) Statement of cash flows.
B) Income statement.
C) Statement of stockholders' equity.
D) Balance sheet.
163) Current assets include:
A) Assets that must be paid for within 12 months.
B) Assets that will be used up or converted to cash within 12 months.
C) Assets that will be used for many years.
D) Any assets that were purchased for cash.
164) With respect to current assets, liquidity refers to:
A) How quickly the asset can be converted to cash.
B) The magnitude of the asset's account balance.
C) Whether cash was paid for the asset at the time of acquisition.
D) The accuracy of the balance being reported.
165) The following financial information is from Shovels Construction Company:
Accounts Payable
$
15,000
Buildings
80,000
Cash
10,500
Accounts Receivable
9,500
Sales Tax Payable
4,500
Retained Earnings
47,500
Supplies
40,000
Notes Payable (due in 18 months)
35,000
Interest Payable
3,000
Common Stock
35,000
What is the amount of current assets, assuming the accounts above reflect normal activity?
A) $20,000.
B) $60,000.
C) $140,000.
D) $175,000.
166) Consider the following items:
Land
Accounts Receivable
Notes Payable (due in three years)
Accounts Payable
Retained Earnings
Prepaid Rent
Deferred Revenue
Buildings
Notes Payable (due in six months)
Equipment
How many of the items listed above are generally long-term assets?
A) Two.
B) Three.
C) Four.
D) Five.
167) Resources owned by the company that will provide a benefit for more than one year are
called:
A) Current assets.
B) Current liabilities.
C) Long-term assets.
D) Revenues.
168) Long-term productive assets used in the normal course of business are typically classified
as:
A) Current assets.
B) Investments.
C) Intangible assets.
D) Property, plant, and equipment.
169) Patents, copyrights, franchises, and trademarks are examples of:
A) Current assets.
B) Investments.
C) Intangible assets.
D) Property, plant, and equipment.
170) A current liability is defined as:
A) An amount borrowed less than one year ago.
B) An amount due to an employee.
C) An amount due within one year.
D) A small amount due.
171) An advantage of a classified balance sheet is that it is easy to see:
A) If the company is likely to be profitable in future periods.
B) If the company is profitable in the current period.
C) If current assets are large enough to pay current liabilities.
D) If dividends have been paid to stockholders.
172) Which of the following current liabilities does not involve the future payment of cash?
A) Interest Payable.
B) Deferred Revenue.
C) Accounts Payable.
D) Salaries Payable.
173) The Deferred Revenue account is shown in which statement?
A) Income statement.
B) Statement of cash flows.
C) Balance sheet.
D) Statement of stockholders' equity.
174) The following financial information is from Bronco Company. All debt is due within one
year unless stated otherwise.
Retained Earnings
$
52,000
Supplies
37,000
Equipment
72,000
Accounts Receivable
8,600
Deferred Revenue
6,000
Accounts Payable
15,000
Common Stock
25,000
Notes Payable (due in 18 months)
35,000
Interest Payable
7,000
Cash
22,400
What is the amount of current liabilities?
A) $63,000.
B) $28,000.
C) $45,600.
D) $22,000.
175) Which of the following are reported as stockholders' equity in a classified balance sheet?
A) Debits and Credits.
B) Revenues and Expenses.
C) Common Stock and Retained Earnings.
D) Assets and Liabilities.
176) The following table contains financial information for Trumpter Inc. before closing entries:
Cash
$
12,000
Supplies
4,500
Prepaid Rent
2,000
Salaries Expense
4,500
Equipment
65,000
Service Revenue
30,000
Miscellaneous Expense
20,000
Dividends
3,000
Accounts Payable
5,000
Common Stock
68,000
Retained Earnings
8,000
What is the amount of Trumpter's total assets?
A) $81,500.
B) $82,500.
C) $68,500.
D) $83,500.
177) The following table contains financial information for Trumpeter Inc. before closing
entries:
Cash
$
12,000
Supplies
4,500
Prepaid Rent
2,000
Salaries Expense
4,500
Equipment
65,000
Service Revenue
30,000
Miscellaneous Expense
20,000
Dividends
3,000
Accounts Payable
5,000
Common Stock
68,000
Retained Earnings
8,000
What is the amount of Trumpeter's total liabilities?
A) $5,000.
B) $78,500.
C) $68,500.
D) $83,500.
178) The following table contains financial information for Trumpeter Inc. before closing
entries:
Cash
$
12,000
Supplies
4,500
Prepaid Rent
2,000
Salaries Expense
4,500
Equipment
65,000
Service Revenue
30,000
Miscellaneous Expense
20,000
Dividends
3,000
Accounts Payable
5,000
Common Stock
68,000
Retained Earnings
8,000
What is the amount of Trumpeter's total stockholders' equity?
A) $5,000.
B) $78,500.
C) $68,500.
D) $83,500.
179) If a company records cash received for services to be provided in the future with a debit to
Cash and a credit to Service Revenue, how will this error affect total assets for the current
period?
A) Total assets will be too low.
B) Total assets will be correct.
C) Total assets will be too high.
D) Not possible to determine.
180) Providing services to customers on account would affect the balances reported in which
financial statement(s)?
A) Income statement.
B) Statement of stockholders' equity.
C) Balance sheet.
D) All of the financial statements in the other answers would be affected.
181) If a company incorrectly records Service Revenue too high, which of the following is true?
A) Net income in the income statement is overstated.
B) Retained earnings in the statement of stockholders' equity is overstated.
C) Total stockholders' equity in the balance sheet is overstated.
D) All of the other answers are correct.
182) When a company owes employee salaries at the end of the period but fails to make an
adjusting entry for that amount owed, which of the following is true?
A) Net income in the income statement is overstated.
B) Retained earnings in the statement of stockholders' equity is overstated.
C) Total stockholders' equity in the balance sheet is overstated.
D) All of the other answers are correct.
183) Current assets in a classified balance sheet are typically listed in order of:
A) Operational functionality.
B) Lowest to highest amount.
C) Importance to the company's profitability.
D) Liquidity.
184) The liquidity of an asset in a classified balance sheet refers to:
A) The dollar magnitude of the asset.
B) How quickly the asset will be converted to cash.
C) The length of time for which the company has owned the asset.
D) The likelihood that the asset will help to increase the company's profitability.
185) Which of the following describes the purpose(s) of closing entries?
A) Adjust the balances of asset and liability accounts for unrecorded activity during the period.
B) Transfer the balances of temporary accounts to common stock.
C) Reduce the balances of the temporary accounts to zero to prepare them for measuring activity
in the next period.
D) Transfer the balances of temporary accounts to common stock; reduce the balances of the
temporary accounts to zero to prepare them for measuring activity in the next period.
186) The primary purpose of closing entries is to:
A) Prove the equality of the debit and credit entries in the general journal.
B) Ensure that all assets and liabilities are recognized in the appropriate period.
C) Update the balance of Retained Earnings and prepare revenue, expense, and dividend
accounts for next period's transactions.
D) Assure that adjusting entries balance.
187) The closing process includes which of the following?
A) Closing the balance of the retained earnings account to zero.
B) Closing the balance of only the dividends account to zero.
C) Closing the balances of only revenue and expense accounts to zero.
D) Closing the balances of revenue, expense and dividend accounts to zero.
188) The purpose of closing entries is to transfer:
A) Accounts Receivable to Retained Earnings when an account is fully paid.
B) Balances in temporary accounts to a permanent account.
C) Inventory to Cost of Goods Sold when merchandise is sold.
D) Assets and liabilities when operations are discontinued.
189) Which of the following is a permanent account?
A) Dividends.
B) Service Revenue.
C) Advertising Expense.
D) Retained Earnings.
190) Which of the following is true concerning temporary and permanent accounts?
A) Cash is a temporary account.
B) Permanent accounts represent activity over the entire life of the company.
C) Permanent accounts must be closed at the end of every reporting period.
D) Temporary accounts represent activity over the previous three years.
191) The following table contains financial information for Fisher Inc. before closing entries:
Cash
$
23,000
Common Stock
34,000
Supplies
4,000
Advertising Expense
2,000
Accounts Payable
20,000
Service Revenue
30,000
Salaries Expense
3,000
Prepaid Rent
4,000
Dividends
3,000
Equipment
45,000
How many of the above accounts are permanent?
A) Three.
B) Four.
C) Five.
D) Six.
192) Permanent accounts would not include:
A) Interest Expense.
B) Salaries Payable.
C) Prepaid Rent.
D) Deferred Revenues.
193) Permanent accounts would not include:
A) Accounts Payable.
B) Office Supplies.
C) Utilities Expense.
D) Common Stock.
194) Temporary accounts would not include:
A) Salaries Payable.
B) Advertising Expense.
C) Supplies Expense.
D) Dividends.
195) Of the following six accounts, which ones have temporary balances:
(1) Service Revenue
(2) Dividends
(3) Salaries Expense
(4) Common Stock
(5) Retained Earnings
(6) Cash
A) (1), (2), and (3).
B) (4), (5), and (6).
C) (2), (4), and (5).
D) (1), (3), and (5).
196) Which of the following accounts will NOT be involved in closing entries?
A) Prepaid Insurance.
B) Service Revenue.
C) Utilities Expense.
D) Retained Earnings.
197) When a company prepares closing entries, which one of the following is NOT a correct
closing entry?
A) Debit Retained Earnings; credit Salaries Expense.
B) Debit Dividends; credit Retained Earnings.
C) Debit Service Revenue; credit Retained Earnings.
D) All of the other answers are incorrect.
198) The ending balance of Retained Earnings can best be described as:
A) The amount of cash received from stockholders over the life of the company.
B) The amount of net income over the life of the company not paid to owners in the form of
dividends.
C) The amount of dividends paid over the life of the company.
D) The amount of net income over the life of the company.
199) The ending Retained Earnings balance of Juan's Mexican Restaurant chain increased by
$3.2 million from the beginning of the year. The company declared a dividend of $1.3 million
during the year. What was the amount of net income during the year?
A) $1.9 million.
B) $3.2 million.
C) $4.5 million.
D) $1.3 million.
